For many businesses pursuing and recovering business debt is a priority. The Late Payment of Commercial Debts (Interest) Act 1998 should be of interest as it inserts an implied term for interest, together with a fixed sum charge and arguably costs, in business to business contracts for the supply of goods and services, where the contract is otherwise silent in this regard.

The interest/charges don’t arise on each invoice, but on each debt. Therefore, each time part of the price falls due under the contract, another qualifying debt is created i.e. each instalment gives rise to a debt.

The Interest Rate

The rate is set twice a year by adding 8% to the Bank of England’s official bank rate, and the current rate is 8.75%.

Fixed sum charge

Businesses should also remember that once interest begins to run the creditor is entitled to a fixed sum in addition to interest on the debt. This fixed sum depends on the amount of debt:

Below £1,000      =            £40

£1,000-10,000    =             £70

£10,000+             =             £100

Costs

For contracts made on or after 16 March 2013, if a fixed sum is payable, the creditor also has an implied contractual right to be paid the reasonable costs of recovering the debt, less the fixed sum.

This provision may be useful where seeking to recover costs where the relevant forum does not provide for costs, for example, the Small Claims Court or adjudication of construction contracts. However it is by no means guaranteed that a judge would grant costs in such circumstances.

Interestingly, there is no express power in the act to reduce the fixed sum or costs. It is therefore arguable that the court has no power to deprive a supplier of these benefits, even in a case which justifies total remission of interest. That was the conclusion reached by the County Court in Northern Ireland in Blue Autumn Ltd v Glenview Nursing Home [2013] NICty 2.

Conduct

Interest may be reduced to nil in the interests of justice, if justified by the supplier’s conduct.

Contracting out of the Act

Parties to commercial contracts can exclude the right to interest under the Late Payments Act, but only if the contract provides an alternative ‘substantial contractual remedy’ for late payments.

Do you have to inform your customer that you will be claiming interest due to late payment, together with compensation and costs?

The short answer is no, however you may wish to put warnings to this effect on your invoices, statements or terms of business, in the hope of prompting early payment.

Your terms and conditions

If you do change your terms of business, make sure your customers know. You should:-

• Advise your customers that your Terms and conditions have been revised, and when these revisions will come into effect;
• Provide your customers with a copy of the revised Terms. It is best to do so in writing so there is proof of same; and
• Ensure all documents in which your Terms and Conditions appear, are referred to, or are appended to, are updated;

N.B. Existing contracts will continue to be governed by the Terms and Conditions which applied at the time they were entered into.